Americans for Tax Reform (ATR) supports Senator’s McCain, Shelby and Gregg’s amendment to S. 3217, the Restoring American Financial Stability Act of 2010.
Their amendment puts in place an orderly transition period to end the conservatorship of both Fannie Mae and Freddie Mac (GSEs) and eventually requires each to operate – without government subsidies – on a level playing field with private sector competitors.
This amendment sets a time period to end the current conservatorship for Fannie and Freddie in 2 years from the date of enactment. FHFA has an option to extend conservatorship for 6 months if FHFA Director determines and notifies Congress that adverse market conditions exist. If at end of conservatorship a GSE is not financially viable, FHFA must place that GSE in receivership. If GSE is financially viable, then it would be allowed to re-enter market under new operating restrictions.
If it re-enters the market, the following conditions must be applied:
- Repeal of the affordable housing goals mandate for the GSEs;
- New limits for mortgage assets held on its books of no more than 95% of mortgage assets owned on December 31st of the prior year, reduced an additional 25% by the end of year one, reduced an additional 25% by the end of year two, and reduced to $250 billion by the end of year three;
- Strengthens capital standards, and allows them to be increased by the FHFA as necessary;
- Repeal of the temporary increases to conforming loan limit and high-cost area increases, and return to the $417,000 confirming loan limit for the first year, subject to annual adjustments by FHFA;
- Prohibition on the purchase of mortgages exceeding the median home price for that area;
- Minimum down payment requirement of at least 5% for all new loans purchased by the GSE, increasing to 7.5% in the second year and 10% in the third year;
- Repeal of the GSE’s exemption from having to pay state and local taxes;
- Repeal of the exemption allowing GSE securities to avoid full SEC registration; and
- Assessment of fee on GSEs to recoup full value of the benefit due to guarantee provided by the federal government. GAO will conduct a study to determine current value of government guarantee.
ATR encourages all Senators to support this amendment. Please contact Brian Johnson at [email protected] with any questions.